Is CFPB’s Mulvaney waging war on the agency he runs?

If anyone has doubted that acting Consumer Financial Protection Bureau Director Mick Mulvaney intends to overhaul the agency, the last three days alone have put those doubts to rest.

Just this week, the CFPB reportedly withdrew an April 2017 lawsuit against four online payday lenders, signaled it would tighten up on its spending, launched a public review of all the bureau's activities and announced that it would reopen the payday lending rule.

Lawyers who represent banks and credit unions praise the moves, noting that Mulvaney, who also is director of the Office of Management and Budget, was trying to show that Republicans can run the government more efficiently.

"He is changing the agency to be more of a traditional law enforcement agency and he is going to start listening to the companies that he regulates, which was not the case under the prior regime," said Scott Pearson, a partner at Ballard Spahr in Los Angeles.

Some praised the recent aggressive moves by acting CFPB Director Mick Mulvaney, saying that he was trying to show that Republicans can run the government more efficiently. Others suggested Mulvaney was waging war on the agency.
Bloomberg News

Others suggested Mulvaney was waging a full-scale war on an agency that he and other conservatives have never liked.

"This looks like a concentrated effort to quickly and significantly change the CFPB from within," said Christopher Willis, a partner at Ballard Spahr. "Everything he's done since taking office has supported the idea that he wants to restrain the agency's activity, not just now but for the future."

As reported by Bloomberg, the CFPB on Thursday dismissed a case against four online payday lenders that were sued in April 2017 for allegedly deceiving consumers by collecting debts they were not legally owed. That came on the same day as news about a letter, dated Wednesday, from Mulvaney to Federal Reserve Chair Janet Yellen in which he requested "zero" funds for the agency in the second quarter. He said the bureau instead would use a reserve kept for emergencies to fund the agency.

In just six weeks on the job, Mulvaney has signaled his intent to reopen almost every recent CFPB rule. He has put a freeze on all CFPB enforcement actions, pending a review, and has directed the bureau's staff to stop collecting any personally identifiable information from companies it supervises. Lawyers say the net effect has been to slow investigations and potentially cripple the agency's law enforcement function.

Many banks and financial firms supervised by the agency welcome the moves. The CFPB has been extremely aggressive in prosecuting financial companies. Mulvaney's predecessor, Richard Cordray, drew criticism for giving the appearance of listening to industry but always siding with consumer groups.

"Mulvaney is going to try to change the way the CFPB operates to match his policy objectives, which are agreeable to a lot of people in the public and industry," said Richard Horn, a former CFPB senior counsel and special adviser, who heads Richard Horn Legal in Tucson, Ariz. "A lot of people believe the CFPB had been running at a certain clip, with an aggressive posture, where they were willing to test their positions in court cases. Having new leadership at the CFPB that will be more conservative with rulemaking and enforcement is welcomed by many in the industry."

Still others think Mulvaney, a former House Republican from South Carolina, listened for years to companies complain about the CFPB and now is taking positions without worrying about the consequences to consumers.

"The bureau's role will be diminished and there's an effort to make that diminished role permanent," Willis said.

How noteworthy was Mulvaney’s 'zero' funding request from the Federal Reserve?

Mulvaney's letter stated that the CFPB already had $177 million in the reserve fund, enough to cover its second-quarter budget of $145 million.

"This letter is to inform you that for the second quarter of fiscal year 2018, the bureau is requesting $0," Mulvaney wrote to Yellen.

Rep. Carolyn B. Maloney, D-N.Y., said the request for "no funds" meant Mulvaney was planning to "eviscerate the CFPB."

“Our worst fears about acting CFPB Director Mick Mulvaney have been realized — he is clearly trying to the dismantle from within the one federal agency whose sole mission is to fight for and protect consumers," Maloney said in a press release Thursday.

Some experts called Mulvaney's response prudent and questioned why the CFPB had had such a gargantuan reserve to begin with.

"The CFPB has a blank check from the Federal Reserve, and Mulvaney is saying they have this money in the bank, so they don't need any more money," said Pearson."He's making a rational budget decision. This is the director of OMB, I don't find this surprising at all. I think it's terrific."

But the letter to Yellen still suggests a new era of budgetary tightening for the agency. The bureau has not yet announced layoffs, but it has no plans to work on any significant projects going forward.

Operating without a reserve fund also could mean Mulvaney is not expecting to ask for an increase in the agency's budget in the future. The CFPB's fiscal 2018 budget is estimated to be $630 million.

What is behind Mulvaney's top-down review of existing CFPB rules and policies?

One of the more significant announcements by Mulvaney came Wednesday when he said the CFPB plans to publish a series of requests for information in the Federal Register in the coming weeks asking for input on every aspect of the agency's work.

The public review is similar to President Trump's early executive orders that required agencies to send reviews of their operations to OMB, lawyers said.

Though the CFPB said the public review would cover enforcement, supervision, rulemaking, market monitoring and education activities, the first request was notable, focusing on so-called civil investigative demands, or CIDs.

The CFPB has been heavily criticized for the broadness and short time frame it allows companies that respond to CIDs, which are subpoena-like requests for information issued during enforcement investigations.

House Republicans have long set their sights on CIDs.

The Financial Choice Act, a House-sponsored bill to carry out several regulatory relief provisions but which has insufficient support in the Senate, had sought to change the appeals process and lengthen the time frame for companies to respond to the demands.

"The CFPB did need its wings clipped a bit on the CID process, which is overly burdensome," Horn said. "On the flip side, the actual enforcement attorneys that handle the CIDs have been very easy and pleasant to work with, and they understand the difficulties of responding to the CIDs."

Pearson agreed. He called the CID process "incredibly burdensome, difficult and unreasonable."

"It's been the biggest 800-pound bully ever," Pearson said. "The enormous compliance costs created by the agency meant you had to hire a bunch of lawyers to be prepared to respond to their requests for information. Those are direct costs imposed on industry by impatience and an unwillingness to work with companies."

What is the ultimate endgame of all the CFPB changes?

That is hard to say, but Mulvaney's aggressive steps to dial back Cordray's moves, which the industry saw as aggressive, could be a prelude to legislative reforms of the agency. The changes by Mulvaney are causing some experts to revisit whether the CFPB's single-director structure is to blame for overreaching by agency leadership.

When the CFPB was first conceived by now-Sen. Elizabeth Warren, at the time a law professor at Harvard, the original plan was for the agency to be led by a five-member commission, not a single director.

Some have suggested that Mulvaney is trying to scare Democrats into agreeing to changes in the Dodd-Frank Act to scale back the CFPB's authority, including subjecting it to congressional appropriations.

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Under Dir. R. Cordray, the CFPB overreached in enforcing its own interpretation of law, regulation and historical guidance. It now appears to be "pay back time" with Mulvaney at the helm. This is also not a good thing for the industry. What FIs need and desire most is predictability, consistency, and an informed deliberative process where they can manage and grow their business. These wild pendulum swings hurt for FIs and the customers they serve. And so it goes. . . .